Intro: You are listening to the doctor in the dugout with Dr Alan Beyer, brought to you by Hoag Orthopedic Institute

Dr Alan Beyer:. Welcome back to Doctor in the Dugout. I’m thrilled to be joined today in studio by my guest, Dan Mavraides. Dan, thanks so much for being here with us today.

Dan Mavraides: Thank you, Dr Beyer. What a pleasure to be here. You know, I’m a big fan of the show, and it’s nice to be down here at beautiful Angel Stadium.

Dr. Alan Beyer: Well, as opposed to Beverly Hills.

Dan Mavraides: Yeah, exactly right.

Dr. Alan Beyer: Okay, so whenever we have a new guest on the show, I always like to start off by having him or her give us a minute or two, just a little background education, where you grew up, where you went to school, and how you wound up landing where you are today. So take it away. The microphone is yours.

Dan Mavraides: Thank you. Alan, I grew up on the West Coast. I was born in Boston, moved out here at an early age of four. So I grew up in Los Angeles and got a taste for that. So Cal weather spent most of my childhood here, but moved around quite a bit for my parents, work and school. Found myself on the east coast to finish high school, and then went to Princeton University, where I studied economics and played some basketball. We had the fortunate time of starting out with a new group of guys and finishing our senior year by winning a championship. And then I played a couple years of professional basketball in Greece and Italy. Wonderful experience. I got to see the world at a young age and and play for amazing cities in different countries. Really get to know the culture there for an extended period of time instead of visiting. And then my career shifted. It split into finance, partially, where I started my investment advisory career in my early 20s, after basketball, and I’ve been a wealth manager for 1112, years now. And about four or five years into my career, I started unretired. I came back for a second time to basketball and started a new sport called 3x three basketball, which has been in the past two Olympics, is really one of the fastest growing urban team sports, and has brought in, has just expanded the basketball culture, you know, around the world. So I’ve been a part of that to this day, and been helping families, individuals, athletes and entrepreneurs make smarter financial decisions.

Dr. Alan Beyer: So a couple of things that you brought up in that intro, I want to delve a little deeper into. First is European basketball. Americans don’t realize how big basketball is in Europe, although I will say in the last 10 to 12 years, we’ve had a significant influx of European players into the NBA, and invariably, they become really big stars because they have such strong fundamentals. They don’t play that Show Boat kind of basketball, you know, that slam dunk kind of basketball that we’ve gotten used to here with our homegrown stars, but they, they are so strong fundamentally, the Dirk now it skis the, I mean, I mean the names go on and on and on that you just remember, what is it about the European game that stresses basketball fundamentals so much more than individual skills?

Dan Mavraides: That’s a great question. I think it’s it’s talked about quite a bit as we’ve seen more Europeans make the transition, and just international players, more broadly, make the transition to the NBA and find great success. And you’re seeing different skill sets. You know, one analogy I remember my first year as a professional in Greece, we spend 30 minutes at the start of practice working on passing, and these are all professional athletes between their 20s and 30s that have been playing their entire lives. And, you know, bounce passing at extreme lengths, challenging passes, advanced passing, but it’s just not something that is necessarily focused on as much, maybe in the US system. So I think, you know, American athletes are very athletic. You’re seeing athleticism grow throughout the world. But skill sets, yeah, can be can be honed everywhere, you know, outside on, you know, in your garage, on a court with a ball some air in it, you can work on your dribbling skills. And I think that the Europeans definitely take a structured framework to developing those skill sets at a young age, and the players are also thrown into the professional teams as teenagers, particularly the successful ones, so they have a chance to start developing those skills at a faster rate as well.

Dr. Alan Beyer: So the other point that you bring up is the three by three, three on three basketball, which is the typical playground basketball in the streets of New York, the streets of Philadelphia, where John Thompson, who I have a tie to, from going to Georgetown, who you have a tie to, from being at Princeton, right? He used to scour those playground basket. Ball courts where they were playing three on three to find his talents, and Lord knows, he developed a lot of talents through his year at George years at Georgetown. It’s really great to see three on three come back, because it’s easier to get six guys to play ball than 10 guys to play ball. It’s half court basketball, usually on the playgrounds, and it allows inner city kids, you don’t need expensive equipment. All you need is a ball and some air, as you said. And it’s, it’s great to see a resurgence of three on three, because I think that’s, that’s a game in and of itself with totally different strategy than five on five full court basketball.

Dan Mavraides: That’s exactly right. It’s, it’s been a blessing to be a part of FIBA 3x three that’s helped grown this, this discipline of the game that we’ve all known for so long and played. I think that a lot of professional coaches look at it as a way to, not only as a different game, but as a way to really develop skills that transition to the five on five game. And it’s constant movement. As you said, it’s a very high pace. The transitions, there’s no there’s no stoppage in FIBA 3x three basketball, a made basket, the defense has the right to the ball, and you have 12 seconds to clear it and come back and score. And so it’s frantic, and every possession is critically important. There’s there’s really no room for error. And with that, there’s a higher variant of outcomes, because the games are close there by ones and twos to 21 and it’s, it’s been a great, a great way for the game of basketball to continue to grow internationally, for other countries to participate in the Olympics that haven’t had an opportunity to in the past and And really to train, as you mentioned, for the next generation of basketball players, for those girls and boys, to start developing better habits through the game.

Yeah. I don’t think you’re alone in that sentiment and offense is more exciting. You know, naturally the game highlight dunks, big threes, those are, that’s what keeps the game going. I don’t think anyone gets too pumped up, apart from athletes, from seeing someone turn a point guard in the back court three four times and making them almost get a back, you know, an eight second call, or whatever the violation is, and so, but defense is, yeah, critically important. And you’re right in 3x three basketball, you’re on an island at every at every play, and your help side, they can’t help you because there’s no help on helping them. So you got to be able to you’re really held accountable at every possession from the defensive standpoint.

Dr. Alan Beyer: So in our next segment, I want to dive into a little bit about what you think has changed in basketball when you played it professionally, versus now and then I want to dive into the n, i L, but one quick question before we take a break here. How come you didn’t grab the name Greek freak before Giannis? You pre dated him by a number of years? How could you not think of that nickname and take it from him before he could grab it? 

Dan Mavraides: I was too late on that one. And I think that even if I had Alan, that he would have ran with it. Unfortunately, the Greek freak, yeah, what an amazing athlete. What he’s done for the game and the international development and, yeah, we’re in a couple athletic, Greek Athletic Hall of Fames together. And so that’s one of my claims of Fames. You know, one thing that I think we are seeing with him. Though he’s so dominated the first couple of years that he was here, people have watched a lot of film, and like in every other sport, when you start to learn what a guy’s tendencies and trends are, you better learn how to defend against him. And I think that’s what we’re starting to see now. Yeah, I think that teams are planning against him with all their might. And you’re right. That’s, that’s, you hit the nail on the head. When you look at a professional career that long, you gotta, you gotta reinvent yourself over and over and over again, develop new skill sets, see the game differently, and find another way to be effective, or bring back the sky hook.

Dr. Alan Beyer: So I want to get into this segment. I love having guys who’ve been retired from guys and gals got to keep doing that, who are retired from their chosen sport and but they’ve been out for a couple of years. And I always like to ask, okay, let’s talk about basketball then versus now, both at the college and professional levels, at Princeton and in the pros, both European and here. So what are your thoughts about where the game has gone in the years since you’ve been out of the sport?

Dan Mavraides: Well, what a transition it’s been. Certainly I, you know, unwillingly, I’ll admit it’s my 15th college reunion coming up this year, so I’ll be back on. Campus in May. And yeah, the basketball, the athletics landscape for college sports, as we know and is discussed in the media every day, has drastically changed. The transfer portal and I L, you know, the battle between, you know, these treating these athletes like professionals that are also still in school, and the primary goal is to get a good education and see somewhat of the college experience. So it’s it’s a vastly different landscape. I can’t believe how much it’s transformed since I’ve stopped playing, and it’s been fascinating to follow. 

Dr. Alan Beyer: You know, as a fan and an alumnus of a school that used to be a great basketball power, it’s disheartening to fans to see new faces every single year and not have any continuity of building a team. You know, John Wooden wouldn’t have happened. Mike Krzyzewski wouldn’t have happened in today’s landscape with what’s it’s one one year, and then I’m going to go to another school. It’s going to pay me more, both in basketball and football. This isn’t unique to basketball. And as fans, I think you’re seeing a lot less enthusiasm from the fan base, because every year they’re seeing five new faces who, by the way, if they do great, they’re going to be gone next year, either to the pros or to some other school that’s paying them more money. How do you how do you develop any kind of fan base and loyalty with that kind of system?

Dan Mavraides: Winning? I think, I think at the end of the day, you’re exactly right. I think a lot of fans, alumni, the supporters of their teams and their sports, have seen a change, and I think they’re digesting it. You know what it looks like in five years? I don’t think any of us are exactly sure, but right now, certainly the current state, it doesn’t, you know, is pictured as you laid it out. You know, kids are being able to transfer at any point. There’s money and finances are the dominating factor for a lot of the decisions being made, as opposed to fit culture, experience, education, camaraderie, loyalty, so a lot of those things, yeah, have been put in jeopardy. As a former athlete, I’m a fan of the of these boys and girls getting an opportunity to benefit off their skills. And I think that when you go through an evolution like this, it’s it’s hard to adjust to, and I think everyone’s trying to figure out how they feel about it. And at the end of the day, you know, our interest should be with these athletes, making sure they get the best education, they have an opportunity to grow as individuals in addition to being an athlete, because, as we’ve discussed, you know, they’re, you know, they weren’t pros. 15 years ago, we were college athletes, and we played for a team, you know, the team name on the front, and we all bought into that. For better or worse, there was really not much opportunity to leave and try and start over.

Dr. Alan Beyer: Well, the old saying was that the name on the front of you jersey is more important than the name on the back of your jersey, but we’re losing that now. How does it Kate, an 18 year old kid, right, who’s making more money than the coach? You know, listen to discipline from the coach. Number one. Number two, how do you allow an unlimited number of players to be picked up by a college via the transfer portal? There’s got to be some limits put on that. And the thing that I worry the most about, if it’s a school, is shelling out $400 million a year to their football and basketball teams, which are really the two major sports where kids are getting paid big bucks at this moment. Yes, where’s the money going to be to pay for crew and tennis and lacrosse and the sports that don’t generate huge amounts of money, which right now are being supported by basketball and football income? I mean, that’s what I worry about on the college forefront.

Dan Mavraides: Yeah, and I don’t think you’re alone with that concern. I think, you know, all sports should be profiled equally as much as possible, but there’s a business now that’s attached to these sports, and it’s a growing aspect. And so, yeah, I think those are all really important questions. You know, I think that the NCAA and the bodies at hand are reviewing this and trying to make sure that you ended a place where the athletes being benefited, but also the institution and the education and the other sports and the whole other college experience is not being eaten up alive or sacrificed for all this money that these students are able to generate now.

Dr. Alan Beyer: We might see football and basketball get cut off from the rest of college sports as a result of this. Because of the whole money situation…

Dan Mavraides: It’s interesting, treated separately, maybe, you know, in a fat in some set of, you know, regular, regular regulations and, and, yeah, how to monitor, evaluate the programs. Yeah, they could be treated somewhat differently, and I don’t think anyone wants that for the most part. So, yeah, it’s a fascinating time. From my perspective. It really is. And I think anytime an industry or a sector goes through an evolution like this, it’s there’s there’s challenges, there’s things that didn’t maybe pan out as expected. You know, did the pendulum swing too far? Or not that’s that’s the debate going on today, but certainly it’s important that these athletes that are generating money and earning an IL income are appropriately supported as well too during this time, even if it gets rolled back in some ways, it’s a unique opportunity of a lifetime to make this type of money.

Dr. Alan Beyer: So that segues perfectly to I want to talk to you about last year, and that’s we talk about the physical health of our athletes. We’ve talked increasingly the last few years about the mental health of our athletes, because we’ve seen so many mental health issues emerge in the last couple of years and be appropriately publicized, because it’s a big issue in society. I always say sports is a microcosm of society, but we don’t talk enough, and you are leading the charge on this about the financial health of our athletes. An 18 year old kid who gets millions of dollars for the next couple of years for playing college foot, college football or college basketball shouldn’t be broke by the time he’s 30, and an alarming number of professional athletes who make big bucks are broke by the time they’re 30 or 35 you’re kind of the steward of professional, professional financial advice for these kids. Tell us how you go about that. How do you teach them?

Dan Mavraides: That’s great. Thank you for bringing that up. Alan. That’s right. My firm Rebalance, we’re a wealth management business for, really, anybody, individuals, families, institutions, and one facet of our business now is geared towards financial education for student athletes, and it’s called starting line. And the idea is just the same way. In order for you to have success as an athlete, you have to have a game plan. You need luck and opportunity, but for the things you can control, you need a game plan that’s well executed, constantly evaluated, approved upon, and you have to be adaptable. And so similarly, if these athletes can take an approach toward their financial life at this young of an age that mimics what they do on the field or the court. They’re going to be successful. And what does that entail? Having a coach, you know, having a financial advisor, or someone that has an expertise that can help guide you, mentor you, having a game plan, having a structure where, when you get paid, you have an understanding of what is earmarked for taxes, because this is self employment income, and nothing’s withheld. What is going towards your long term savings plan, what’s earmarked for growth, and then, what monies do you need to keep for your cash flow? So they’re going to get an advantage, not only in the ability to accumulate wealth at an early age that can compound over 40 years into something very significant, but also this immediate practice in managing themselves as a business and as a financial entity, to start learning good habits.

Dr. Alan Beyer: I think the power of compounding isn’t stressed enough in these people. If you start young and put a little bit away and let it reinvest and grow on its own. I mean, that’s the Trump savings account idea that you’re hearing about now, 1000 bucks for every kid who’s born by you. Compounding that over 20, 30, 40, years, it becomes a significant amount of wealth.

Dan Mavraides: You hit the nail on the head. It’s one of the most successful habits of long term investors is that let the work be done for you, and really what you need to do is, is, is, start early. Start early enough. There’s a saying, the best time to invest was yesterday, and the second best time is today. So it’s never too late. These student athletes have an opportunity at a very young age to start contributing to monies and benefit for that compounding where, you know, 10s of 1000s can turn into hundreds of 1000s. Hundreds of 1000s could turn into millions or 10s of millions. I mean, that’s my favorite type of chart to show. Is some some growth rates, and looking over a 40 year time frame, if you can really set this money away, you can benefit from the growth of financial markets over time and really have a nest egg that allows you to live a different life, a better life, a financially independent life.

Dr. Alan Beyer: So how can our listeners learn more about what you’re doing and what the company’s doing? Where? How can they contact you and learn more?

Dan Mavraides: That’s brilliant to say. Thank you so much. They can check out our website, rebalance360.com, Starting Line is a subsidiary of that that’s profiled on the website. And they can email me directly at any time, dmavraides@rebalance360.com. I love meeting new people, I love giving investment advice, and happy to be a resource for any of your listeners. 

Dr. Alan Beyer: Dan, I want to thank you so much for taking time out of your busy weekend to spend a little time with us today. It’s been enlightening, and I hope that our listeners will take advantage of those resources.

Dan Mavraides: Absolutely, please do and thank you so much for having me. Dr Beyer, what a pleasure. 

Dr. Alan Beyer: Thanks for being here.

John Rothmann – I’m John Rothmann and you are listening to the Retire With More show. I want to remind you that to contact us directly, all you have to do is go to www.Rebalance-IRA.com or, if you prefer, you can pick up the phone and call 877-IRA-4IRA (877-472-4472). We want to tell you that because, as Paul is leading us through his … analysis … we wanted to give you the opportunity to check with us. Remember, that consultation is free. We welcome your calls and your emails. But now, let’s pick up where we left off because Paul, I can’t wait to hear about those sweaty palms.

Paul Sullivan – You’re causing more stress.

Mitch Tuchman – When we were last talking, right before the break, Paul you were all hooked up with transducers. They were measuring your sweaty palms, your heart rate and everything and they’re asking you a lot about money and you asked them, how did I do in answering the questions? And they said, we didn’t care about the questions.

Paul Sullivan – Man, I feel bad for your listener whose just sort of come on here with me talking about sweaty palms and my racing heart-rate.

Mitch Tuchman – Well, this is a financial show everyone, so don’t be surprised.

Paul Sullivan – So, as I was saying, I was out at Kansas State at their financial therapy clinic. They had hooked me up to all of these ways to measure how my body was reacting to the questions I was being asked. And, as I said, I was trying to answer the questions really honestly, really think about them, and they weren’t terribly hard questions. They were the type of questions that any financial advisor would ask his or her clients.

And I thought I had aced this test. And I turned to the woman who had been watching me and said, how’d I do? And she said, well, how do you feel? And I said, well, I’m a little cold but, other than that, I think I did great. And she said, you had one of the highest stress levels of anybody we’ve ever tested. And I said, what are you talking about? How is this possible? I knew all of the answers. And she said no, you were focused on the answers, but your body was responding in a different way. It was a classic fight-or-flight response. My fingertips were so cold because all of my blood was going to my core to keep the vital organs going. My palms were sweaty because I was nervous.

And she’s fascinated by this, while I’m horrified by this. This is one of those big hurdles that every advisor needs to get over because talking about money, even if you think you know all the answers, even if you think you’re financially secure, is difficult because it’s so personal. And as I say in the book, these days we can talk about the most horrible disease we have or somebody else has and not worry about it. We can talk about sex with friends, acquaintances, and not worry about it. But we cannot talk about money openly. I mean have you ever gone to any of your friends or neighbors and said, “Hey, how much do you make a year or, hey, how much do you have saved in your 401(k), or how much did you put in that 529 for your kid’s college fund?” We would never, ever do that. It’s taboo. But there are so many other things that are important and essential to our lives, just as money is, that we’re willing to talk very openly about.

John Rothmann – Why? Why is that? Why are people reluctant to talk about money?

Paul Sullivan – Because money is no longer what it should be. Money is a means of exchange. If you have more money you can buy more things. If you have less money you can’t buy as many things. It’s that simple. As this trip out to Kansas State and a lot of the other research in my book showed, money has become attached with all of these psychological values. Money is equal to your self-worth. Or the classic keeping up with the Joneses. Or you want money to stand in for something it can never stand in for — love. You want to show more love or you want to make up for love you didn’t receive.

Money is a means of exchange. And money can buy you freedom. If you have a bit more money you can get away, take a nice vacation. I don’t necessarily subscribe to “money doesn’t buy you happiness.” Money can buy you escapes. When money becomes more than just the ability to buy things you need or buy things you want, that’s when it becomes very difficult for people and that’s when people clam up and they don’t want to share how much they have or how little they have because they don’t want to be judged or they don’t want to seem like they’re prying if they’re the person with more money asking the person with less.

Mitch Tuchman – And yet in my business at Rebalance as a financial advisor, usually when we begin a conversation with a client it’s because something got triggered. Maybe they’re out of a job and they’re between jobs and now they’ve got to deal with their money and that’s always hard. But usually it’s forced by something that happens in your life. They also say that when people turn 39, 49, 59, right before turning a decade, that’s a trigger. But these triggers happen and they call us up and when they find somebody who wants to talk about their money, in our case an advisor, and they get to open up about it — you can’t stop them. It’s like a relief for so many people to lay it out and get an opinion because they can’t do it socially or in other environments. So it’s very interesting from our standpoint how this all works. Sure, socially, no one will talk about it but on the other side of this, people are desperate to talk about it, we’re finding at Rebalance.

John Rothmann – I’m curious about tips you got from those who spend a lot of money but aren’t broke. How do you do that? I really want the answer to that one Paul, before I send you my bills.

Paul Sullivan – This is a fun chapter I have. I start off the chapter with a football player, guy named Paul Posluszny, who is a linebacker, he’s a really great linebacker. And I started off with him because, man, football players, they get beaten up all the time for the bad choices they make with money. And Posluszny is different. By the end of his playing days, if he doesn’t get another contract, after taxes, after his agencies, he’s still going to be worth about $20 million. That’s how much he’ll get, after tax, after agencies.

But when I met him, we were talking about cars. He was wrestling, he’d been wrestling over….he was getting a free car when he played for the Buffalo Bills, because he signed some autographs. He really wanted to buy a BMW. This is a kid who grew up very modestly. Mom a teacher, dad a mechanic and he really wanted a BMW. Well, I talked to him a couple of years after that, when he got a second contract that really put him in this tens of millions of dollars range and he said, I remember we were talking about the car, and I said, yeah, yeah Paul, I remember that. And he said, well, I couldn’t do it. I said, what do you mean? And he said, I couldn’t buy the BMW.

The headline number in this guy’s contract is $47 million. This is the headline number. With football players those headline numbers don’t matter. It’s the guaranteed part that matters. I said, Paul, why couldn’t you buy the BMW? And he said, well I drove it, and it was great, but it just was too much money. I just couldn’t pull the trigger. He’s talking about a $90,000 7 Series BMW, and I said, well, so what did you do? And he said, well, I bought an Audi. … It’s still comfortable. It’s still that good German engineering. And it just felt better.

John Rothmann – There isn’t that much difference between and Audi and a BMW!

Paul Sullivan – Well, $90,000 to $75,000. It’s 15 grand, but in percentage terms what’s that, 18%, 19% less? It’s those little decisions, those little choices that people make throughout the course of their life that make a difference. If you could save 18% every time you made a decision and take that 18% and save it for something you might need, either for a goal — it adds up. And a guy like that is going to be OK because he has the ability to make those little decisions now and wait and see how they add up later on. And he’s not depriving himself, either.

Mitch Tuchman – It’s almost like an instinctive ability to be able to stay on the other side of the line that you’ve described, this imaginary thin green line. It’s almost like when you get too close to it, you know and you want to get away from it to stay on the upper part of it instead of cross through it. It’s almost instinctive for certain people, or is it learned?

Paul Sullivan – I believe it’s learned. And I believe that Posluszny is an interesting case. Mom a teacher, dad a mechanic. He told me stories. They talked about money at the dinner table. They had to make decisions. They were solidly middle-class people growing up in central Pennsylvania but, you know, their decisions counted. If they needed a new car, maybe it was a new Chevy, a new Ford, maybe it was a new Toyota — it was a need. The old car was not working anymore. And they had to think OK, if we buy this car, what else are we going to have to give up?

And that’s one of the things that people miss. The people that I’ve known over the years who are the best with money, who are the best-adjusted, particularly at an early age, not the client that’s coming in at age 39, 49, 59 saying help me now. Those people who are best-adjusted, have the best relationship to money in their 20s are people whose parents talked openly about the decisions they were making, whether they had a lot of money or a little money, and they were connecting their labor to what that labor created, which is money, the money that allowed them to make those decisions. And that is essential. I think the people that try to hide money from their kids or pretend their kids will never figure out how much money they’re worth when they can go on Zillow and figure out exactly how much the house costs, they’re deluding themselves.

Mitch Tuchman – And that’s such an interesting dynamic here in the Bay Area. And you mention the founder of eBay in the book. But people here in the Bay Area oftentimes find themselves with these huge windfalls, and I’ve lived in the Valley for 35 years and I’ve watched people come into lots of money, blow lots of money, and others just hold on to it and save it and grow it, and it’s just a very interesting dynamic about getting experience with having money.

John Rothmann — And isn’t the key here, because we are talking about retiring with more, that you really want to give thought at a younger age to what you’re going to need when you get older. Is that a fair statement?

Paul Sullivan – Sure. Not even when you’re 20 looking at 70. When you’re 20 and looking at 40 and you want to have a home and you want to have a couple of kids and you want to take a vacation. That’s a mental leap. That’s a big place to go from your first job to having a family.

John Rothmann – If you want to retire with more, and we have to break in another minute or so on this segment, but if you want to retire with more, what is your best advice for the people listening to our program?

Paul Sullivan – I think it’s practicing moderation with occasional moments of indulgence. Because if we tell people you need to save “X” amount every week and do that, boom, boom, boom, boom, boom, don’t have your Starbucks, don’t treat yourself, it’s going to be very difficult. If people have some sort of goal in mind, they want to have “Y” by this time, and by the end of the year they want to have “Y” more, well, that gives them to have some sort of flexibility. They can practice moderation and have occasional bits of indulgence. They can have that nice bottle of wine at dinner. They can go out with their friends. They can go on a vacation. I think that that’s a more realistic way for people to think about spending and saving their money.

John Rothmann – Speaking of indulgence, you have a story in your book about the son of Ruth’s Chris Steak House, and that is an indulgence — if my wife is listening, it’s one of her favorite restaurants — so when we come back we are going to ask you to tell us that story and a little bit more, when we come back right here on the Retire With More program. Our guest is Paul Sullivan. We will be right back.

Mitch Tuchman – Charley you were telling us that the difference between taking social security at 62 years old versus 70, two people with the exact same income could mean a 76% difference.  What if I retire at 62, and I need that social security and I don’t really want to wait until I’m 70 years old, even though I can get 76% more I feel like, well I never really know how long I’m going to live, and maybe I’ll just grab it now.

Charley Ellis – That might be your way of thinking about it.  That’s not the way that I would think about it.  I would think very carefully, I might check with my doctor and if he said “Charley you’re going to go in the next 90 days” then I guess I’d go ahead and claim it, but if I am going to be hanging around at all, and had a decent chance of living until let’s say 80, I would defer because that extra income would be terrifically valuable and you never know you might live longer, and longer again. To me, the ability to have a higher income that is adjusted to protect me from any inflation, that happens and goes as long as I can live, I think that’s a really important benefit.

Mitch Tuchman – And in your book “Falling Short” that just came out, you co-wrote with some real important people from the retirement industry think tank at Boston College, what are some of the key things that the everyday investor can take away from that book like the social security claiming strategy, are there other ideas that you propose for people?

Charley Ellis –  Sure, one of the easiest ones to talk about is if I can convince someone to wait until they’re 70, not only do they get 76% more than they would have gotten then if they had quit working at age 62, at 76% I think it’s really important that’s not the total sum of it.  You then have a chance for 8 years, you’re not taking money out of your 401(k), 8 straight years you’re putting money in. It just so happens that your 60s are a time where most of us find our spending levels saucers down, so little bit lower than it normally is, and then it lifts up a little in our mid to late 70s because of healthcare.  You’re not taking money out, but you are putting money in, and you can put in pretty generous contributions and you get a return on your investments that are there when you started at 62 and all the accumulation.  If you put those three together and you have a shabby not very good market, you still have increased your 401(k) by 150%, and if you have a good market, decent, normal market, you’d be increasing it by 200%, and that’s really important because that means that your payouts can increase by that magnitude too. So you get the bigger social security and the bigger 401(k) payout, and the combination can lift large numbers of people, and when I talk large numbers I’m not talking 100,000 people I’m talking about 10-20 million people being lifted from a level where they can’t quite make it or worse, up to a level where they can say they’ve got enough and they’re going to be ok.

Mitch Tuchman – And we should remind everybody that “enough” in your judgment is when you hit retirement having at least 80% of your top income, whatever you were earning the last 5 years before your retirement.

Charley Ellis – Right you are.

John Rothmann – Ok, I want to reiterate that because everybody who is listening to the sound of our voices will now be able to compute roughly what it is that they need in order to retire with more.

Mitch Tuchman – Charley, since you published the book “Falling Short” you’ve been out talking about the book and listening to people’s responses to the book – what have people’s responses been to the book, and what are some of the surprising things that came out of the book that people are listening to and saying “wow, that’s important – I didn’t know that…”

Charley Ellis –  Well, the first thing is that almost everybody is surprised by how much benefit you get by working 8 more years and how valuable it would be for every individual to be able to sit down and know the numbers and then be able to make their own choice, for themselves and their family.  I’m all for free choice, but I don’t think anybody is making a free choice if they haven’t got the information that they need to make a good free choice.  That’s one of the things that virtually everybody is picking up on and saying “oh boy, is that really important.”  The second thing that really comes across very strongly is this is a problem that could grow to be one of the worst social economic financial problems our country has had in 50 years.

John Rothmann – Explain to me why it could be a major problem?

Charley Ellis – You tell me what you think John, when there are 20 million people who don’t have enough to live comfortably reasonably in retirement.

John Rothmann – That’s exactly the key.  You’re exactly right, but I want people to understand what it means that if people do reach retirement age don’t have enough money, don’t have enough resources, hasn’t contacted Rebalance in order to know precisely what they can do – the statement you made was so critical.

Charley Ellis – Well that sad reality is John, individuals are going to be left on their own.  10 years after retirement you don’t know anybody at the company that you could call and they don’t know you, and they don’t have a responsibility to you as they look at life and you don’t have a claim on them as you look at life and they look at life.  So you would really be on your own, getting older, starting to incur pretty serious health costs, not having enough money to be able to do all the kinds of things that you always thought you’d be able to do and that’s a terrible combination for individuals to go into if it could be avoided and I think the reality is that it can be avoided for most people.

John Rothmann – And what is the way to avoid it? What is the method you recommend?

Charley Ellis – First, be sure that everybody knows about social security and the 76% increase. Second, be sure that everybody knows about the benefit increase they can have in their 401(k).  Third, and this is something we haven’t talked about, but it’s very important, we could easily get to a very real strength of solution if as soon as you took a job, you’re automatically in the 401(k) plan unless you say you don’t want it and that you want to opt out or I want to get out of this deal.  Fine, you could opt out, but otherwise you’re in the plan automatically and you automatically match the match.  You get the free money that the company was prepared to put up automatically unless you say you don’t want that and then third you have auto-escalation.  Every time you get a raise, your choice, but either ¼ or 1/3 goes into increasing the savings that you’re putting aside for future use for when you need it later on and that auto-escalation could rise until you get up to something like 12% savings, but if you do it gradually, and only when you’ve already gotten a raise, it doesn’t hurt, it’s not causing you to change your behavior.  And then the investing- have the investing be done automatically for you in a balanced portfolio that is automatically rebalanced and is invested in index funds so that you don’t have to worry about a thing because you know in the long run it’s going to accumulate and accumulate and it’ll be very sensibly managed so that for you, but the time you come to your retirement years, hopefully 70 instead of 62, you will have accumulated a substantial amount in your 401(k) plan compared to the way we are today, which is, get this – half of the people in America who have a 401(k) plan, and are 65 have less than $110,000 in the plan and they’re about to start a 20-25 year retirement.  It’s not possible for them to make good on that retirement dream or plan that we all had with that kind of money.  If you’ve been putting money in all along and building it up, and been investing it in low-cost index funds, with somebody rebalancing it on their behalf, they would be in such a different position that you’d say “Well done!”

John Rothmann – And let’s point out that that’s precisely what Rebalance does.  It rebalances, it gives you individual attention and their investment method is the index fund, which is precisely what you’ve been recommending and why you’ve been so supportive of Rebalance is that correct?

Charley Ellis – Exactly so.  I mean I like Mitch, Scott and the team at Rebalance, but the reason that I’m interested in the program is because I know we’ve got a problem and when I can see a solution to that problem I want to get behind it.

Mitch Tuchman –  Charley, we’ve talked a lot about the type of investor that should get an advisor but when somebody is out there looking for an advisor, and of course I’m biased towards Rebalance we have a great service, but just in general, when you’re talking to people how do you help them pick an advisor?  What do you tell them, things to look for?  Obviously don’t go to a broker, go to a registered investment advisor, but what other things do you tell people when they ask your advice on that?

Charley Ellis – The reason it’s so important to go to a registered investment advisor is that they are required by the federal government to meet standards of fiduciary responsibility, which basically means they’ve got to put the interest of their client ahead of themselves.  The brokers have said we don’t want to be required to treat people that way and we don’t want to be held responsible for being fiduciaries.  We don’t want to have penalties if we don’t take care of our clients by putting their interests first, and it’s really embarrassing as a nation that the President of the United States was commenting that this is not right, this is not the way things should be.  The political process however, it looks like the people that don’t want to be subject to fiduciary responsibilities and are going to be continuing to “give financial advice” that they will be able to politically get this regulation not passed or approved and it’s a shame.

John Rothmann – Charley we only have another minute with you- what are your closing words of advice for our listeners?

Charley Ellis – Saving is a wonderful idea because the only person you’re saving for is your family, and yourself.

John Rothmann – And again, your new book “Falling Short”.

John Rothmann – Thanks Charley!

Charley Ellis – My pleasure.

John Rothmann – I’m John Rothmann…

Mitch Tuchman – I’m Mitch Tuchman…

John Rothmann – …and this is the Retire With More Program. After all, what do we want to do? Retire with more. Now, Mitch in this segment and the next one we have a very special guest. I’ve read her for years. Please introduce Donna.

Mitch Tuchman – This is going to be a great segment. We have Donna Rosato. Donna is a writer at Money magazine and she’s been doing that for about 12 years. She’s a dyed-in-the-wool personal finance journalist. And just so everybody knows, Money magazine still remains the largest personal finance magazine in the United States. It’s got 2 million subscribers still, and Donna is regularly on CNN, MSNBC, I’ve seen her on the Today show, CBS This Morning, CNBC — she’s very charming, a very attractive woman and they put her on the air a lot to talk about personal finance. So, unfortunately, we can’t see her, but we’re definitely going to get to hear from her, so hello Donna, welcome to the show.

Donna Rosato – Thank you both for that very kind introduction. I do enjoy talking about personal finance and there is a big appetite for this information, both from younger folks and older folks. In addition to the magazine, we are the largest personal finance magazine, but we also have our website, Money.com, and you can get a lot of information there, too. But, it’s a really great topic. I love writing about it, interviewing people myself about it, and then I have to follow all my own advice, too.

John Rothmann – That sounds perfect! I want Mitch to lead off because he’s been telling me about some surveys that you were citing to him, and I’m just fascinated. So Mitch, take it away.

Mitch Tuchman – So, John where this came from is Donna and I were preparing for the show, and I began asking her some questions and she kept saying oh, well, there was a survey about that and this very surprising result happened in the survey, and then she would explain what that was. After she mentioned that five or six times, I said wait, Donna, these are really interesting surveys. Let’s talk about some of the interesting facts that companies, organizations all over the world are bringing forth to you to pitch you to write stories about. So, as the person that gets all of this information, what do you find very interesting? So the first one, Donna, that I thought was really cool is the one you’re writing about now, and I guess it’s coming up in a forthcoming Money magazine, about the 401(k) millionaire survey from Fidelity?

Donna Rosato – That’s right. This is fresh data from Fidelity, which is one of the largest providers of 401(k) plans for companies, so they may be the company that manages your 401(k). They have come out with their latest survey and the number of people who are in their 401(k) plans who have $1 million or more has doubled in the past two years. What we’re seeing for the first time is, the 401(k) is turning 35 next year, so we’re seeing for the first time how people who have had a 401(k) basically offered to them throughout their career are kind of managing with it. Certainly, the bull market of the past couple of years has helped people accumulate more, but these 401(k) millionaires are particularly interesting.

They’re not just people who make a lot of money, super big bucks, but a lot of the people in Fidelity’s survey who are 401(k) millionaires earn less than $150,000 a year. So we were fascinated by that, about how you could be a 401(k) millionaire without being super, super wealthy and they practice a lot of things that are really interesting. Some of the habits include, of course, saving early, but I think, Mitch you and I were talking about this earlier, there’s a lot of panic about retirement and having enough. You always see the headlines that nobody is going to have enough and everyone is going to run out of money, but we ran some numbers looking at what it takes to have $1 million dollars. If you start when you’re 25 and you put away 10% of your salary and you do that throughout your career, you’ll easily get to $1.5 million by the time you’re 65. So you don’t have to save a lot. You just have to start doing it early enough and you can put yourself really in much better shape.

Mitch Tuchman – So, wait a minute. Let’s say, if I start putting away $5,000, $3,000 and then I get up to the limits of maybe, whatever they are, $15,000, $17,000 depending upon my age — just doing some simple math — let’s say the average is $10,000 a year for 25 years, you mean that can actually become $1 million?

Donna Rosato –  It can. The way to think about it, and of course not everybody needs $1 million and for some people $1 million isn’t enough, but a way to think about it is taking a percentage of your salary. So if you make, say, $75,000 a year and you’re 30 years old and you put 10% of that away, so that’s $7,500 a year away, and you do that for 35 years, you’re going to have $1.1 million. Now, that doesn’t even include an employer match. Ninety-six percent of companies offer a matching contribution for your 401(k). Put that in and you’re going to be well over $1 million. I’m not saying that people shouldn’t be worried about having enough money for retirement, but I am saying that if you have a 401(k) or some kind of savings plan and you earn money and you’re not in debt, you can save. You can save and you can be more in control of your finances.

Mitch Tuchman – And back to this concept of being stressed about not having enough but actually finding that people are living okay and not being miserable by living on less, talk to us a little bit about that.

Donna Rosato – That’s really true. Now of course there’s panic, how much do I need to save? There’s this rule of thumb in the industry, when you retire you should replace 80% of your pre-retirement income. Well, that’s kind of a lot of money and what I have found over the years, interviewing people about how they’re living in retirement, I find a lot of people are living very happily on less than that. The reason I think is because people’s expenses do go down perhaps more than they think when they retire, but also people find when they get to retirement there are also things that they can do besides have a big pile of money.

For example, I interviewed this couple. They were terrific. The husband was diagnosed with sort of a chronic condition and they said you know what, we don’t want to work until we are 65. They were 62, They really wanted to start retirement. They didn’t have quite enough money, so they said you know what, we can live on less. They sold their house in Chicago. They moved to Tennessee and they were able to buy a house in cash, and they were just so happy. They were living on less, but they were thrilled because they had so much freedom in their life.

Mitch Tuchman – I keep hearing that too with a lot of people I speak with all over the country. Where you live has so much to do with how much you need for retirement, cost of living.

John Rothmann – And it reduces stress, doesn’t it? A lot of people when I talk to them about retiring really worry about what they’re going to be able to do. So what do you tell somebody about to retire who’s beginning to stress. To scale down? Is that what you recommend?

Donna Rosato – Well, not even scaling down necessarily. I think the No. 1 thing you want to do before you retire is figure out how much money you need. And part of that is your fixed costs. Are you going to retire with a mortgage? Are you helping your kids out with their college loans? You have to look at your fixed costs and you want to make sure you have enough steady income to cover that. And then after that it’s discretionary spending. Do you want to take a big trip when you retire? Do you want to buy a vacation home? So, if you can figure out what you’re spending is going to be, and it’s easier to do as you get close to retirement, then you can figure out, well, gee, I do need to downsize because my house is taking up so much of my income, I’m not going to be able to do the things I want to do.

Mitch Tuchman – Well Donna that reminds me of this Morningstar study we were talking about, but on this 401(k) topic, we run this math for people all the time at Rebalance. If people want to call one of our financial consultants at Rebalance, we can run all kinds of scenarios about how much money you’ll have in your 401(k) at a modest rate of return if you keep putting money in. Doing that math is usually fascinating for people because it’s hard to grasp mentally how money does compound and money makes more money. Anyway, we can always run that for people. On this Morningstar topic, the second study we were talking about, you mentioned how the trajectory of spending really goes down in retirement and people were very surprised with that.

Donna Rosato – That’s true. I think people think, oh, I have a certain amount of money, my expenses will be the same every year, but really your spending in retirement is very dynamic. You may actually spend a little more in your initial years of retirement than you do in your last years of working because now you have time to spend money and take up expensive hobbies or travel. You do see sort of a spike up, but what is surprising is some research by David Blanchett, who is a retirement researcher at Morningstar. He looked at what actually happens to your spending in retirement. Actually, there may be a little spike in the beginning, but then steadily it goes down.

People do spend some more at the beginning. You always hear people say, oh my gosh I’m going to spend less and less and then I’m going to have this big cost at the end for healthcare. That’s not what happens. You see this steady downturn and even though your healthcare costs do tend to rise at the end, there’s a trade-off. You’re actually maybe spending more on healthcare, but you’re spending less on other things. But it kind of ties into what we were talking about earlier, which is retirement and happiness and what makes you happy. What has been surprising to me is that people can live on less than they expect very happily and that the things that make them happy in retirement don’t really cost a lot of money.

John Rothmann – Donna, we have to take a break. It’s very thoughtful of you and you’re going stay with us for another segment and we really appreciate that. Our guest is Donna Rosato. She is a writer for Money magazine. She has been there 12 years. She’s amazing. And when we come back, we have more to talk about, right here on the Retire With More Program. I’m John Rothmann and we’ll be right back.

John Rothmann – I’m Jon Rothmann and you’re listening to the Retire With More program and our guest Jonathan Clements is an absolutely outstanding, fascinating fellow, Mitch we want to continue on our theme of the following 5 themes, we’ve covered three so far, let’s hit the next one

Mitch Tuchman –  I want to go back to talk about the third theme just a little bit more, because again, Jonathan Clements is one of the top personal finance writers in America.  He writes for the WSJ every weekend and has been doing this for decades, and his perspective is second to none.  We’re talking about people as hunter and gatherers, and we are not wired to do instinctively things that relate to being financially successful.  That all those instincts that we’ve got burned into our brains have sort of moved us into making the wrong decisions in the wrong time when it comes to investing.  Jonathan, I wanted to ask you have you read about this Vanguard study where just guiding people to avoid those instincts can help an investor over many years increase his returns by 3% per year.

Jonathan Clements – I’ve seen that study and what it talks to is the value of a good financial advisor and I preface it with the word good. People make a huge number of mental mistakes, but lets lay it on the line right here.  Saving and investing for retirement is too important to mess up.  If you can’t do it on your own, if you consistently fail to save enough, if you regularly panic when the market goes down, if you find yourself chasing the hot performers, if you clearly can not get it done on your own, then find somebody qualified, whose acting as a fiduciary to work on your behalf.

John Rothmann – and that would be from our perspective Rebalance.com

Mitch Tuchman – well of course, we talk people off the ledge all of the time. it’s amazing and I would like to read some of those behavioral studies that you’ve mentioned…. that’s a lot of our value added.

John Rothmann – so I just want to be clear then, Jonathan you would then no advise me to take all of my money and put it in Enron?

Jonathan Clements –   no I would rather go to Vegas and put it on red, that would be my preference.

John Rothmann – lets keep going, we’ve got two more themes to hit, Mitch?

Mitch Tuchman –  Jonathan, talk about this sort of holistic approach that people miss that they don’t take in managing their money.

Jonathan Clements –   when you think about your finances, you really want to take a broad view that cuts across all these different financial products that you get sold. You should be thinking about your insurance, and your real estate, and your retirement portfolio, and your college savings, and your mortgage all in a single financial systems, rather than thinking of them in one bucket at a time.  And, often the central organizing element is you try to take this broad view of your finances, it’s what economist call your human capital, which is your ability to pull in a pay check.  Why is your human capital so important?  Well, in crass economic terms, your years in the workforce are all about building up enough financial capital so that one day you can live without the income of your human capital, and so if you think about that process, building up savings so that one day you no longer need a paycheck.  You should make sure that all the different parts of your finance support that.

For instance, early in your working career when you know you have decades of paychecks ahead of you, you should probably be heavily focused on the stock market, because in the sense your paycheck is like earning a pay check from a bond.  You have a big bond, that’s your paycheck, so you diversify it by investing in a lot of stocks.  As you approach retirement at the end of your human capital, what you’re going to want to do is bring bonds into your portfolio so that you replace the income of your paycheck with income from your bonds.  Similarly, because your human capital is so important, you’ll probably want to have some disability insurance in case you suffer a career ending disability so that you have income that’s going to replace that paycheck.  The riskiness of your paycheck should also be reflected in how risky of your stock portfolio is.  If you work on commission and/or there’s a great chance you’re going to get laid off you’re probably going to want to be a little big more conservative with your portfolio. Similarly, in terms of debt, the riskier your human capital, the less debt you should be taking on.

Mitch Tuchman – you know Jonathan it’s interesting, we were recently talking to a prospective client the other day.  This guy had an enormous pension, about $70,00 a year.  You add up the social security he was going to be collecting and the guy was making more money than he would ever spend.  And yet, to him, he was being very conservative in his stock portfolio and we asked him why and he said well you know, there’s this rule, that I should take the number of years that I am and that’s the percentage of debt.  When we spoke with him holistically at Rebalance, we talked to him and we said “you can look at this pension and social security and the income that’s throwing off almost like a bond portfolio, which would mean that the IRA account is really to protect you from inflation and so that holistic approach we’re finding, evades people many times when they’re thinking about it. And, of course, the key here, and you pointed it out very eloquently Jonathan, is rebalancing.

Jonathan Clements –   that’s absolutely true.  Before we move off from the topic of holistic financial thinking, there’s a couple of other things along the same lines that we should talk about-  one is as you look at your overall finances you should be making sure that you’re not overcommitting to one goal and under committing to another.  And specifically you shouldn’t being buying ever-bigger homes and stuffing money into a college account if it means you’re shortchanging your retirement.  The fact is you don’t need to own the biggest house in the neighborhood, and you don’t have to pay for your kids to go to Harvard, but one day you will need to retire, and when you retire you can’t take out a loan, like you can when your kids are going to college or when you’re buying a house. When you start retirement, you have to have a great big heaping of dollar bills, and if you don’t have it you’re going back to the office

John Rothmann – I just want you to know that I’ve told both of my sons that their job is to graduate, to get great jobs and support me in my old age, but I guess I can’t count on that – talk to us about addition versus subtraction.  I did not do very well in math, but people do focus on additions not the subtractions, can you talk about that with us please?

Jonathan Clements –   when you discuss investing with individuals, their all focused on performance, are they going to be the market, what sort of return are the going to earn, and I say to people I’ve been kicking around Wall Street for 30 years, nobody knows which direction the financial markets are going to be going or what stocks are going to be another.  The crystal balls on Wall Street are all cloudy so forget trying to figure out what’s going to be the next top performer. Rather than trying to focus so much on the additions, try to limit the subtractions.  And, when I think about subtractions, I put them into two buckets.  First of all, there are the small annual subtractions that in the end can take a huge chunk out of your wealth and what we’re talking about here is subtractions from things like mutual fund expense, and brokerage commissions and trading too much.  And then there’s also the subtraction of annual tax bills.  If you trade your portfolio too much, realize your capital gains too quickly, you can end up giving away a lot of your annual gain so that your portfolio compounds at a lower rate.  So, that’s the smaller annual subtractions that you need to be aware of, and then there’s these big hits that can set you back so far that retirement can become a decade or two further away.  And what I’m talking about is taking huge risks like putting all of your money into a couple of stocks and one of them winds up going into bankruptcy, or we have a big market decline, You are over invested in stocks, you panic when the market goes down, you lock in your losses and you’ve given up money that you will never get back.  So don’t focus so much on what you’re going to make.  Think instead a lot more about what you could potentially lose. And if you limit those losses good things will happen.

Mitch Tuchman – That’s great… we call it risk-adjusted return, it’s not the return along… but it’s the return combined with what risk you took to get it.  But Jonathan, we’re going to run out of time here but can you tell us a little bit about the Money Guide 2015, your newest, updated book and why its important for people to get a copy of that?

Jonathan Clements –   The JONATHAN CLEMENTS Money Guide 2015 is an annual updated personal finance guide.  It just came out and it really is, unique and I will tell you why.  Most books take months and months to come to market. I have wrapped up this book on Dec 31, that evening I was taking all the latest financial numbers for closing markets, plus latest numbers from the economy and I was updating the book.  Thanks to Amazon and modern technology, that book was wrapped up on Dec 31 and available for sale the next day.  How cool is that?

John Rothmann – Astounding!

Jonathan Clements –   The JONATHAN CLEMENTS Money Guide 2015 is a comprehensive financial guide, it covers ever conceivable financial topic, it really is totally up to date and it will be updated again this year and be available for sale January 1 2016

John Rothmann – last word – 30 seconds.  What do you have to say to people?

Jonathan Clements –   I, over the years, met thousands of ordinary Americans who have amassed 7 figure portfolios – a lot of these people didn’t have high incomes, they weren’t particularly good at investing, but they do all share one attribute and that attribute is that they are all great, great savers.  If you want to know what the key to financial success is  – it’s really, really simple.  You’ve got to live within your means and save as much as possible every month.  If you do that, really good things will happen.

John Rothmann – Thanks, can’t wait to read the book!

Jonathan Clements –   My pleasure.